Level III 2026 Portfolio Management Mock Exam A - Session 1
Determine which manager's return profile is most consistent with Byrne's preferences for the new equity strategy.
(Manager 1, Manager 2)
Justify your response with two reasons.
Note: Each justification should be in a separate paragraph.
解析：
Byrne prefers a manager for the new investment strategy that has a convex return profile and limits the risk of large losses in the fund's value during periods of negative market returns. The capture ratio (upside capture divided by downside capture) measures the asymmetry of returns. When the capture ratio is greater than 1, this indicates a convex return profile. Manager 1 has a capture ratio of 1.3 (123/95) while Manager 2 has a capture ratio of 0.8 (109/132). Therefore, Manager 1 has a convex return profile.
The downside capture measures capture when the benchmark return is negative. Manager 1 has a downside capture of 95%, which indicates that the portfolio returns decline by 95% of the return of the benchmark. Manager 2 has a downside capture of 132%, which indicates that the portfolio returns decline by 132% of the return of the benchmark. Therefore, Manager 2 will experience greater losses than Manager 1 when the benchmark experiences negative returns.
